Cleaning up its coal power plants will cost India $10 billion—but who will pay?

India’s coal-fired power plants may have to burn at least $10 billion, and raise tariffs by at least a tenth, to meet the country’s air pollution standards. This estimate comes four years after the standards were set and two years after the initial deadline to comply was missed.

This is also the most conservative estimate of the cost of installing new technology to lower emissions of sulphur dioxide, nitrogen oxides, and particulate matter from the stacks of thermal power plants, according to a study published this month by two non-profits, the International Institute for Sustainable Development and the Council on Energy, Environment and Water.

Thermal power generation accounts for 80% of India’s industrial emissions of particulate matter and sulphur and nitrous oxides, which often create toxic smog and cause lung diseases.

Indians are bearing the health cost of this non-compliance. On an average, the country will suffer around 26,000 premature deaths and lose 11.5 million work days every year from 2019 till 2030 if the situation does not improve, according to a model-based assessment by the non-profit Center for Study of Science, Technology and Policy.

Cleaning up the thermal power stations is crucial to reducing pollution in India since the country will rely on coal to meet about half of its power demand even by 2030.

What deadline?

In 2015, the government of prime minister Narendra Modi launched new standards to limit the concentration of pollutants from the stack emissions of thermal power plants. By the deadline of 2017, however, hardly any plant was compliant, the study noted.

The government then extended the deadline to 2022, though it is likely that many polluters will still be in violation by then. For instance, the study found that only two out of 441 plants have so far commissioned the required flue gas desulphurization technology which lowers sulphur dioxide emissions by over 90%.

In May 2018, India’s ministry of power gave plant owners the nod to raise tariffs to meet the cost of installing the pollution-control equipment.

However, regulatory hurdles for individual plants have slowed down the process, said Karthik Ganesan, a co-author of the study. Utilities, most of them state-owned and in deep debt, often dispute the power generating firms’ claims of how much the installation would cost and what should be the resultant hike in the tariff, he added.

Though average estimates exist, the authors recommend that the government create an independent panel which can assess the cost of installing such technology for each plant.

The power generators have dragged their feet also because of a lack of enforcement, said Vibhuti Garg, another co-author. Flouting the 2017 deadline did not result in any major repercussions for them. Even India’s supreme court has criticised the government for extending the deadline after failing to properly enact it the first time.

Pricey bills

Installing and running the pollution control technology would increase the thermal power plants’ costs by around Rs0.32-0.72 per kilowatt hour, the study estimates. This would mean raising the tariff levied on utilities by 9-21%, depending on specific factors such as the age of of the plant, its overall capacity, and the amount of time it runs.

The rise in tariffs will also make renewable energy more attractive to utilities, the authors argue. Even though long-term agreements bind utilities to purchase some amount of power from coal plants, they would find it easier to increasingly shift to solar and wind energy.

Further, after the tariff increase is passed on to the utilities, they would need to move the state regulators again to raise the electricity rates they charge consumers. However, hiking power prices is often politically undesirable for state governments, and regulators are rarely free of pressure.

Consumers’ bills also need to rise by between 9% and 21%, in line with the higher tariffs that the utilities need to pay to generators, the study says. It adds that any “electricity subsidies should be targeted only to the poorest,” while others must be charged a price that reflects the real cost of generating power from coal.